Gold and Silver Jump: Why Prices Are Still Climbing

Precious Metals Market Update – January 6th, 2024 (CPM Group)

Key Concepts:

• Backwardation: A market condition where futures prices are lower than the spot price, indicating strong immediate demand. (The speaker clarifies silver is not currently in backwardation.)
• ComX: The commodity exchange division of the CME Group, a major futures and options market.
• Registered vs. Eligible Silver: Distinctions in silver held in Comex depositories, relating to whether the metal has been formally submitted for delivery against futures contracts.
• Open Interest: The total number of outstanding futures contracts.
• Fabrication Demand: Demand for precious metals for industrial uses (manufacturing, electronics, etc.).
• Good Delivery Standards: Specific purity and form requirements for precious metals accepted for delivery against futures contracts (e.g., 99.95% gold).
• Depegging (of Stablecoins): The loss of a stablecoin’s fixed value, typically its 1:1 peg to a fiat currency like the US dollar.

I. Market Overview & Precious Metal Prices

As of 11:40 AM EST on January 6th, 2024, precious metal prices are at high levels. Gold (February Comex contract) traded as high as $2,050, currently at $2,046. Silver is up $3.27 from yesterday’s close at $82.00. These price increases are largely attributed to the December US employment data, which was perceived as negative for the economy. This data fuels expectations of lower interest rates when the Federal Reserve meets on January 27th-28th, and raises concerns about a weakening stock market and economic conditions into 2026 – all factors positive for gold.

II. Shifting Investment Patterns in Gold & Silver

A significant shift in investor behavior has been observed since late August, accelerating in November/December. Investors have moved from selling into rallies to buying rallies, particularly in 1oz, 10oz, 1kg, and 100oz bars. This change was driven by a backlog at refiners from August, initially overwhelmed by investor selling. Refiners were unable to process the influx of material to meet “good delivery” standards (e.g., 99.95% purity for gold). This backlog has now cleared, and investors are now net buyers, evidenced by rising premiums on investment products. The speaker notes that dealers were previously offering discounts to take metal off investors’ hands, but are now charging premiums.

III. Silver Market Dynamics & Addressing Misconceptions

Silver prices are expected to continue rising, driven by both futures market dynamics and stronger fabrication demand in the first quarter. However, the recent substantial price increase since mid-November creates potential for short-term selloffs.

A key point addressed is the incorrect claim that silver is currently in backwardation. The speaker emphatically refutes this, presenting CME Group data showing the March contract at $78.84, May at $79, July at $80.80, and December at $81.22 – clearly a contango (futures prices higher than spot). He clarifies that discussions of “backwardation” often refer to locational spreads (price differences between New York, London, etc.), not a true backwardated market. He stresses that there is no indication of a silver shortage.

IV. Platinum & Palladium Market Analysis

Platinum prices have risen sharply, reaching record levels in December before a slight pullback, currently at $2,299. While vulnerable to short-term profit-taking, the long-term outlook remains positive. The physical platinum market has been tight, with the surplus of newly refined metal relative to fabrication demand shrinking over the past two years. However, the speaker anticipates a broadening surplus this year due to increased mine production and potentially weaker fabrication demand.

Palladium prices are exhibiting even greater volatility, trading above $2,000 and significantly lower in recent days. Investment demand for both platinum and palladium surged in November and December, driving the price spikes.

V. US Employment Data – December 2023 & Implications

The Bureau of Labor Statistics reported 50,000 new jobs created in December, with the unemployment rate falling to 3.7%. However, the speaker emphasizes that the overall job creation in 2023 (584,000) is significantly lower than the 2 million created in 2022 – the lowest level since the Great Recession. Job creation was concentrated in lower-paying food service roles, while construction, mining, manufacturing, and transportation saw little to no growth. This shift towards lower-paying jobs is a concerning trend. The unemployment rate decrease is partially attributed to people leaving the job market following government shutdowns in October/November, including retirements and buyouts.

VI. US Treasury Stablecoins & Potential Risks

The speaker addresses a question regarding the US Treasury’s plans to create stablecoins backed by government bonds. He highlights a critical point from recently passed legislation: these stablecoins can be deped (de-pegged) from the underlying Treasury bonds at the issuer’s discretion. This poses a risk to investors who believe they are holding a secure asset backed by US government debt. He notes that the implementation of these stablecoins is likely delayed until after the November congressional elections due to concerns about their potential negative economic impact.

VII. Comex Inventories & Market Transparency

Comex silver inventories are currently around 449 million ounces, a record high if viewed historically (though the data only goes back to 2003 in the presented chart). The speaker clarifies a common misconception: “eligible” silver in Comex depositories is available for delivery, despite being held by commercial entities (mining companies, refiners, banks). These depositories are “working depositories” with constant inflows and outflows of metal. He dismisses claims that eligible silver is already “spoken for.”

He criticizes an individual who incorrectly stated that eligible silver is not available for delivery, highlighting the importance of understanding the nuances of Comex inventory reporting.

VIII. Data & Resources

The speaker emphasizes the availability of detailed data on Comex inventories, open interest, and deliveries in the CPM Group’s annual Silver Yearbook (and Gold Yearbook, PGM’s yearbook), which has been published since the 1970s. He provides the link to the CME Group website for daily depository reports.

IX. Conclusion & Upcoming Events

The speaker concludes by reiterating the positive outlook for precious metals, driven by economic and geopolitical uncertainty. He announces upcoming events:

• Client Forum: January 21st at 11 PM EST.
• Yearbook Release: Gold Yearbook (March 2024), Silver Yearbook (May 27th), PGM’s Yearbook (late July 21st).
• Webinar: Available online, focusing on the gold and silver investor renaissance.

Notable Quote:

“You may educate yourself. At least right now, it's not illegal.” – Jeffrey Christian, regarding researching market dynamics.

This summary aims to provide a detailed and accurate representation of the video transcript, preserving the technical language and specific details presented by Jeffrey Christian of CPM Group.